How I Bought “Australia’s Cheapest House” (And what it Means For YOU)

The most common response I receive from fellow investors when discussing my purchase of “Australia’s Cheapest House” is either #1- You must have been extremely lucky. or #2- The seller must have been extremely incompetent.

Most of those who know me well, can vouch that I’m a strong believer in making your own “luck”- through hard work, sacrifice, and persistence.

The Story

Many moons ago, while I was living in Australia and working as a property investment researcher, I came across a vacant and run down 3 bedroom 1 bathroom house, located in a small town of New South Whales called Moree.

The property was listed for $80,000 and only needed minor work. Although the numbers in the deal did not look as attractive at the time, they were tempting enough to add the property to my pipeline list (as I did with any other that met certain criteria’s).

A few months had past when I received an email notification from the listing agent informing me of a $20,000 price reduction. As you can imagine, this immediately peaked my interest.

Without hesitating I called the realtor who was representing the seller and promptly started negotiating. After a week had past involving a few figures being thrown back and forth, I received a call from the realtor stating that someone had broken into the property and completely vandalized it. Unfortunately the negotiating came to an immediate halt and the deal appeared to be dead at this stage.

Over the coming months, I continued to follow up with the realtor to get a progress update on the seller’s insurance claim and to see what his intentions were moving forward.

Another couple of months had passed when one morning I received a phone call from the realtor asking me what price I would be willing to pay if the property was renovated and tenanted.

Knowing that the seller will most likely be receiving a fat check from the insurance company and would not be renovating the property to my standard. I, without expecting much, decided to submit a low-ball offer of $37,000.

To my surprise, the offer was accepted, but the tug-of-war was not yet finalized.

While the insurance company was delaying the seller’s pay out, the property continued sitting vacant, making the seller, realtor, and myself increasingly impatient.

After almost a full year of trying to get this deal across the line my impatience finally got the better of me. I called the realtor and stressed “This transaction has been taking way to long to complete, and I’m sick of waiting.

Right now and today only I am willing to take this vandalized and vacant property off the seller’s hands for $15,000 cash. Otherwise I am out of the deal and will be investing elsewhere”. The realtor conveyed my message to the seller and called me back within the hour stating “The seller has accepted your offer.”

*** AMAZING ***

As soon as we closed, I started and completed renovations for $15,000 with a total sum of $30,000 in the deal. With a happy tenant in place and the property now in great condition, I decided to list it at a “walk-out-the-door” price of $80,000.

Before making the purchase I was aware of 2 recent comparable sales in the area of $80,000 and $110,000. The property successfully sold within two months of listing for $75,000, showing a very tidy $45,000 profit.

What You Can Take out of This

A key element that you can implement when building your own property portfolio here in the US, is to always have a pipeline list of deals of which at first glance the numbers might not add up but you can still keep track of any price movements and regularly touch base with the realtor/seller to see if a deal can be worked out in the future.

In the end I have to disagree with the opinions of others, as I don’t believe luck played a factor, due to it taking almost one full year to secure this deal at such a huge discount and the last I heard is that the seller walked away with quite a decent chunk of money from the insurance pay out. (not so incompetent after all).

Do you have any similar stories?

Be sure to leave your comments below!

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About Author

Engelo Rumora is the CEO/Founder of Ohio Cashflow and a successful property investor that quit school at the age of 14. He is known for buying “Australia’s Cheapest House” and building a property portfolio valued at over $1,000,000 in only 6 months. To find out more go to engelorumora.com

Before selling the property we got it tenanted for $180 per week. After deducting water, council and property management it was showing around a 22% net yield on the $30,000 purchase and renovation cost.

Great story there Lord Rumora. Not much negotiating in these parts. Lots of low ball offers and sellers telling the buyer to take a hike. Lots of inventory. Tons of houses that all need work. From total reno to merely replacing carpeting. Not many risk diverse investors around here. Many over-think the simple process. After they go over and over and over the deal, they low ball. Then after weeks of going back and forth, they lose the deal and are surprised. Well, duh. What did you think was going to happen? Can I have my 60+ hours of my life back please?

If you know the market and product well, there is no need to procrastinate. As you mentioned the trigger needs to be pulled on the good deals straight away, otherwise someone else will smell the roses.

I agree 100%, in this case luck wasn’t a factor, and you just took advantage of a huge deal before anyone did so. Who knows, if you didn’t push the trigger and called perhaps you wouldn’t have ended up with the house. This is a very valuable lesson, as soon as you see a deal that has huge potential, trust your gut and go for it.

I disagree with Derek. The very fact that Engelo, “took advantage of a huge deal before anyone did so”, proves luck had a hand in it.

Lord Rumora was lucky in that nobody else either found the deal or did anything about it before he did. Engelo was lucky in that the old geezer either remembered him when he returned or he didn’t have the capacity to remember him, thereby closing the deal. Engelo was lucky in that the owner finally came to his senses and realized he’s living on borrowed time and to enjoy what he has left, thereby closing the deal. Engelo was lucky in that he didn’t have to demolish the entire structure down to it’s foundation otherwise this wouldn’t have been a success story at all. Engelo was lucky in that he didn’t contract some wasting disease he inhaled at the job site.

This entire fouled-up industry requires two things: Luck and money. Without these two, one will go nowhere fast.

You must be lucky enough to:
Obtain backing from a HM lender who won’t tack on your shortage to the principal on a weekly basis.
Locate said lender who doesn’t require 13 years of flipping experience.
Locate an experienced crew who know the time-value of money.
Locate a crew who understand how to operate a cell phone. (no, experienced crews aren’t “everywhere”).
Locate a crew who aren’t lazy, who show up, who don’t sit around at the site.
Have some funds in the bank to stave off Citibank.
Be able to live on 700 calories a day.
Have an emotional and financial support system behind you in the interim.
To locate a deal in an area that doesn’t resemble Deliverance. -if you live 50 miles from a job site, this won’t help you. Or if the deal is in Deliverance Land, good luck flipping it.

NOW once construction is miraculously completed, one needs luck to locate a buyer who has money.
A buyer who isn’t on a weekend pass simply “looking” at houses.
A buyer who may use all cash.
A buyer understands the rules.
A buyer who isn’t hiding something.
A buyer who really, really, really wants to be a landlord or own a home.
A buyer who has their POF or a Pre-Approval on their person.
A buyer who doesn’t take three months just to give you their last name.
A buyer who doesn’t live out of the country. -language barriers and time changes, slow everything down including getting paid.
A buyer who has all of the above but won’t insist on a 5th showing “just to be sure”.
A buyer who isn’t so picky that if the venetian blinds are bent, he goes running for the door.

All the hard work and sacrifice in the world don’t play in the equation of locating all the items on the buy end that I mentioned. For example, locating a HM lender willing to work with an inexperienced flipper. This is all based on luck. After speaking with many wholesalers the past three years, many of them have the same story, “He won’t lend me money because I only have one flip under my belt.” Well how does one gain experience in flipping without a HM loan? What if these wholesalers I’ve spoken with don’t have “family and friends”? They’ll need that cash injection to flip that rental and the HM guys only work with experienced individuals. What about my crew reference? There are many crews in and around the tri-state that fit that description. It’s only luck that a wholesaler finds a crew that not only do a good job but do it consistently and show up on time. This trifecta is too much to ask for and therefore one can only conclude luck plays a role.

It’s purely luck that some are born in the “right” zip code here in the States are afforded opportunities at birth, that others won’t be afforded.

Some will win the lottery, many won’t. Hard work and sacrifice are irrelevant.

Wow guy I hope you don’t live near any tall buildings or have occasion to drive over any bridges…

So luck is real and anyone that is successful is lucky. However “Luck” is setting oneself up to take advantage of opportunities that present themselves. So in this case Engelo was lucky to get the deal because he worked his a$$ off researching countless properties, seeing this one has some possible potential and following up on it repeatedly over the course of many months. Then making offers that would work well for him, being able to deal with the issues with the home to make it rentable and marketable and knowing what it would be worth in the end.
That all comes from hard work and educating yourself.
Since the deal didn’t work for him when he first saw it if he didn’t do all that other work he would not have gotten “lucky” with it.

To your points pretty much every point you made can easily be overcome if you put enough time and effort into finding the solution to the problem faced.

Obtaining a HM loan with no experience: requires either a philanthropic lender…or….or… that word you feel plays no part whatsoever in obtaining the required funds. Since the former doesn’t exist and having experience is a requirement one can only conclude they’d be lucky to locate said HM lender. If what I say isn’t true and luck “has nothing to do with it” then how come everyone and their grandmother aren’t wholesaling?

I never implied Engelo didn’t work hard, he’s a friend of mine, I’ve known him a long time.

You didn’t say he didn’t work hard, you did however say that is hard work is irrelevant to his success (at least on this deal).

First if you read the BP forums and blog comments it appears that everyone and their Grandma ARE wholesaling. True these careers are often short lived, once they find out that they need to WORK to be successful.

Again read through BP and you will see thousands of people that are successful wholesalers, rehabbers and creative landlords (as in not ones that are “lucky” enough to have good W2 jobs that allow them to check all the right boxes on the Fannie forms to get a bank loan). How did all of them get so lucky while “I was a wholesaler for 5 days” Granny didn’t make it? I have a theory it starts with a “H” and ends with a “ard work”.

Shaun, you’re missing the point, again. Hard work…yeah, yeah, yeah, got it.
On the phone all day, yeah, got it. Long hours, keeping the crew in check, yeah, got it.
This is with ANY job. I worked as an Electrician for 20+ years, I know what to do.
Granny didn’t make it NOT because she didn’t “work hard” it’s because she didn’t get the loan.
Why didn’t she get the loan?
Because the HM guy REQUIRES EXPERIENCE.

If a HM guy knocks on her door tomorrow or contacts my MBA friend working @ Chili’s or contacts my neighbor who’s barley making it or they contact my friend in Atlanta and gives anyone of them a loan: they’re LUCKY.

THIS is what I meant when I said hard work is irrelevant. The work involved is inevitable.